Funding the future, the Two Torontos, and the Audio Revolution - with David Perell
Two Truths and a Take, Season 2 Episode 16
|Alex Danco||May 10|| 7|
Hello everyone! This week we have a special newsletter issue - it’s a podcast, with my friend David Perell. This turned out as one of my favourite podcast episodes I’ve ever done, and I hope you get to listen to it.
It’s a hefty hour and 45 minutes long, so we cover a lot of stuff, but there are three main topics of conversation. Here’s how I’d summarize them:
First 40 minutes: Funding the future
This is a topic that should be pretty familiar to anyone who reads this newsletter regularly, and it covers ideas that I’ve written about in posts like VCs should play bridge, Debt is coming, Social capital in Silicon Valley, and The social subsidy of angel investing. The main thesis we explore here is how the idea “We shape our tools, and then they shape us” applies to the relationship between startups and venture capital.
Modern VC is remarkable in that it’s gotten so good at solving a specific problem (which is an existential barrier to getting startups off the ground) we sometimes forget the problem exists. That problem is: when you’re building the unknown future, you cannot really know the ultimate value of what you’re trying to build, and you can’t really know how much capital you’ll have to raise to get there. Therefore, as you start out, you cannot know the value of your own equity, even though it’s the main thing you have to sell.
Modern VC has evolved to solve this problem in a particular way, by creating a reflexive path for bootstrapping companies forward with valuations that are not really bets on the company itself, but rather bets around a series of milestones that unlock a next round, and then a next, until eventually we recursively arrive at a business that can be properly valued. It works really well. The modern startup community was largely built on this methodology.
However, it’s come at a price- and here’s where the “we shape our tools, and then they shape us” idea comes into play. We initially invented this model in order to fund a particular type of startup, but now the funding model works so well that all venture backed startups are explicitly designed with this model in mind, from day one. Annoyingly, the model allows no room for experimentation: if you deviate even slightly, it sends a signal that something’s off.
It’s a complex system, and it works. But the price we pay for this success is a lack of diversity in our startup landscape, and an increasingly narrow definition of what success looks like for entrepreneurs who opt into this model. I’m hopeful that in the coming decade, founders will start to chafe against these constraints.
Next 30 minutes: Cities, the suburbs, and the two Torontos
Then we switch gears and talk about something totally different, which is cities. On the first podcast David and I recorded together, we also talked about cities a lot. And although I don’t usually write about this stuff, a few newsletter issues that come to mind are Why I don’t love light rail transit and What happens if building more housing doesn’t work?
We start out with a recurring observation of mine, which is that the core identity of downtowns versus suburbs have quietly switched places. The fundamental appeal of living in a city, at least to me anyway, is in the happy chaotic diversity. There’s a lot of joy in the unplanned exuberance of all kinds of different people with different backgrounds making a living by contributing in their own way. Cities are classically the place where there’s the greatest density of this kind of exuberance.
In a way, downtowns have become a victim of their own success. As urban revitalization pushes rent higher, the mosaic of small businesses that made these downtowns so interesting in the first place get pushed out and replaced by chain establishments that can afford the rent. But in the suburbs, that diversity still thrives. Go to any strip mall, and you’ll find better restaurants, more family-owned businesses, and a wider range of services than you get downtown anymore.
You can see this effect clearly in Toronto and its surrounding suburbs. There are really two Torontos. There’s the Inner City, which is dense and rich, and embodies the first stereotype you’ve probably heard about Toronto (that it’s a giant real estate bubble.) Then there’s the Outer City, which is the more interesting part.
The outer city of Toronto - Scarborough, Northern Etobicoke, North York, plus the surrounding cities like Mississauga and Pickering - is where you’ll see how Toronto is the most diverse city in the world. It’s young: there are kids everywhere, and you get an unshakeable sense that they are the future. It’s also an environment originally built around the car, although many current residents don’t have one. So there’s an aspirational romanticism around the freedom of driving that’s straight out of 50s Americana, although you’d never mistake it for a Normal Rockwell painting.
The “Toronto Sound” expresses this landscape really well. It’s a different branch of hip hop and R&B compared to American artists, best exemplified in the sound and aesthetic of two record labels: OVO (Drake) and XO (The Weeknd). It’s slow, moody music that’s crafted to sound good while driving. In the podcast, I share my belief that the most important aesthetic inspiration in Toronto culture - even more important than the Raptors - is the 401, the massive highway that spans the outer city.
Toronto is a city that has a hard time telling its story, mostly because it’s such a young city, and still growing up. A third of the new immigrants to Canada come here, and the “average Toronto experience”, if there is such a thing, is distinctly inner-suburban: oriented around distance and sprawl, as before, but hardly homogenous or middle-class. The best place to experience it is at a suburban strip mall: surrounded by windswept concrete and utterly unfriendly, but filled with dozens of family businesses and hundreds of people from every possible background, making up a complete community that you’d never find in the Jane Jacobs-branded downtown neighbourhoods. It’s hard to describe. You should just go.
Last 30 minutes: The Audio Revolution
We wrap up by talking about a specific essay that I wrote last year, The Audio Revolution. It’s hardly the most read post I’ve written in the past year (I don’t think it even cracks top ten), it's probably my favourite. If you haven’t read this, please do! I won’t recap it again here, but in the podcast we go a bit deeper into a few areas, including how to understand Marshall McLuhan’s enigmatic (but profound) line The Medium is the Message, the famous Nixon versus Kennedy debate story, and why audio as a “hot” medium (and headphones as a private delivery vehicle) meaningfully contributed to the last decade of politics.
Hope you enjoy the episode!
First off, there’s some really good stuff in this Twitter thread, if you’re looking for a new book to read:
Here is a fabulous post on tiny layout changes making a big difference:
And finally, in this week’s comics section: Ashley Feinberg has done it again, folks. This week, the mystery of The Flush: with the United States supreme court forced to hear arguments over the phone during Covid times, a mystery justice was caught in a classic work-from-home caper: flushing the toilet without muting your phone. Who was it? Ashley investigates:
Have a great week everybody,